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If a franchisor refuses to renew, what are the franchisee’s remedies?

On Behalf of | Feb 2, 2015 | Termination/Nonrenewal

If a franchisor refuses to renew, what are the franchisee’s remedies?

I’ve been doing this work for franchisees and dealers for a long time and this issue about renewal comes up more and more often. I used to argue (I’ve given up, because I’ve been unsuccessful) that what’s the difference? A termination or a non-renewal, you’re out of business either way so that the protections that relate to terminations should apply to non-renewals.

Unfortunately the case law, the decision by judges over the years said, “No, a non-renewal at the expiration of the term and written agreement is different than a termination during the term of that agreement and so different principles apply.” And so, if you receive a notice that you aren’t going to be renewed, that’s an issue that we have to deal with.

One way we deal with it is to help get enacted, and about 16 states have (enacted), statutes that prohibit franchisors from not only not terminating, except if they have good cause after notice of deficiency and opportunity to cure, but also they may not non-renew absent good cause, notice of deficiency, and opportunity to renew. So statute protection is helpful. If the writing is bad, we also want to know: might that bad language in the writing have been changed by a course of dealing that this particular franchisor or supplier always renews if indeed the franchisee or dealer is capably performing. But we like to see something in the writing that’s helpful; if not, we like to see something in the statute that’s helpful; if not, we also need to take a look at the course of dealing to see what we might argue.

The related issue on renewals is interesting, and that is: sometimes franchisors and suppliers will come out with a new contract at renewal time. So it’s not non-renewal really, but it’s “here, sign this new agreement if you want to be renewed.” And the agreement is so dramatically different and onerous to the franchisee or dealer that they look at it and say “I can’t possibly make any money with this document.” I had a case down in the southern Midwest, a couple states down from Minnesota here, where they were proposing a very different contract and my client was an implement dealer and just knew he couldn’t make a living with this new document. So we went in to court and asked for an injunction prohibiting them from non-renewing us and directing the supplier to give us a contract like what we had before. What I said to the judge was, “Judge, if my wife says ‘Let’s renew our marriage vows’, I’m thinking she means with me. And secondly, when she says renew our marriage vows, I’m thinking ‘she’s not gonna propose one of these open marriage deals’ either. It’s going to be like what we had before, that’s what the word ‘renew’ means.” And the judge chuckled when I said that and granted the injunction.

The concept of renewal is to do again what you were doing before. And so (I call it a Michael Dady amendment), a lot of suppliers and franchisors cross the word “renewal” out of their documents and they now say “At the end of this agreement, we may offer you a new agreement but it could be substantially different than the one you now have.” So then we have to come up with other arguments to help our clients be able to continue that relationship in a way that makes sense for them and their supplier or franchisor.

If a franchisor refuses to renew, what are the franchisee’s remedies?

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